Khachö Wangpo was born in Chema-lung in Namshung, northern Tibet. His early childhood was blessed with numerous visions, including one when he was fourteen months old, in which he saw that he was the reincarnation of Dragpa Senge (First Shamarpa) and that his Lama would be the Karmapa. He met the Fourth Karmapa, Rölpe Dorje, seven years later, upon which the latter immediately recognised him as his disciple. Then the Karmapa gave him the preliminary and bodhisattva vows and then bestowed the Vajrayana empowerments, the Mahamudra transmissions, the Six Yogas of Naropa, and the Whispering Lineage transmissions of the Kagyu lineage. The Third Karmapa had given Dragpa Senge, the First Shamarpa, a red crown as a symbol of their close bond. The Fourth Karmapa thus presented the Red Hat Crown to Khachö Wangpo, in full recognition of his being the Second Shamarpa. Khachö Wangpo studied the Sutras and Tantras with many masters of the Kagyu and Nyingma Schools. He became a greatscholar and his collected works were recorded as having eight volumes.

When his root guru, The Fourth Karmapa passed into Parinirvana at the age of fifty-six amidst many signs of realisation, he had many disciples. In particular Khachö Wangpo continued the lineage and enthroned the Fifth Karmapa, Deshin Shekpa.